NEW YORK - Western Union Co said quarterly earnings fell after settlement charges, but beat expectations and the world's largest payment transfer company improved its outlook for 2009, sending shares up 1 percent.

Net income fell to $181 million, or 26 cents a share, from $240.8 million, or 33 cents a share, a year earlier, the company said on Tuesday.

During the quarter, Western Union recorded a pretax charge of $71 million for an expected resolution of a dispute with the State of Arizona and to fund a multi-state not-for-profit organization.

Excluding the charge, the company earned 33 cents per share. On that basis, analysts expected earnings of 32 cents per share, according to Thomson Reuters I/B/E/S.

Revenue dropped 5 percent to $1.31 billion, hurt by a 10 percent decline in the Americas region, which accounts for one- third of Western Union's revenue. However, revenue slightly beat analysts estimates of $1.29 billion, after higher sales in Asia, according to Thomson Reuters I/B/E/S.

International markets continue to offset some of the softness, in the Americas, Lazard Capital Markets analyst David Parker said in a research note.

The company also narrowed its 2009 revenue and earnings-per-share outlook to the higher end of its previous expectations as businesses improved compared with the previous quarter.

Western Union estimated constant currency revenue to be down in a range from 1 percent to 2 percent, from a previous estimates range of decline of 2 percent to 5 percent.

Western Union forecast earnings per share of $1.23 to $1.28 excluding the legal charge. Previously, it expected earnings per share in a range of $1.16 to $1.26.

We feel more comfortable, but I still feel that some countries like the United States, where unemployment is high, are still a concern for us in terms of the impact going forward, Chief Executive Christina Gold told Reuters in an interview.

Western Union said domestic money transfer revenue declined 15 percent, while revenue in Mexico fell 18 percent.

Western Union shares were up 1.5 percent to $19.97 in early afternoon trading on the New York Stock Exchange. (Reporting by Juan Lagorio; Editing by Derek Caney, Maureen Bavdek and Gunna Dickson)